What is a Credit Report and Why Does it Matter? Financial Advice

A credit report is a record of all your credit history from sources such as: banks, credit card companies, collection agencies and, of course, the government. Your credit report and other sources are used in a mathematical algorithm to achieve your credit score, a term you may be familiar with.

In this day and age it’s rare to find someone who doesn’t have some form of credit. Credit comes in all forms like in credit cards, personal loans, lines of credit, car loans, student loans, mortgages and more. A credit score stems directly from your credit report. These all count for something when it comes time to make that special purchase. Getting sucked in by tacky TV advertisements with hollow promises of getting approved for loans despite having less than stellar credit, is not how you want to end up. A bad credit score can make life difficult and a credit report establishes your level of credit worthiness. That is why it matters.

Your credit report tells the story of your repayment habits and also reports on things like if you paid on time, late or not at all and even a collections agency is after you. When there has been a bankruptcy or consumer proposal your credit report holds information of when a creditor wrote of the debt. They also record how well you are making your mortgage payments.

Another important thing your credit report shows you is how much of your available credit has been used. So if you use up a majority of your credit card limit, there is an assumption that you may be tight on funds. Maxed out and over the limit debts leave a bad impression for credit issuers and mortgage lenders in the future.

There are several categories of lending institutions. The most desired interest rates and terms found solely with prime lending institutions are generally only available to those with the best, ie. highest, credit ratings. Some prime lenders are banks, monoline lenders (available through mortgage specialists), credit unions and more.   

A bad or low credit report leaves you in the hands of “subprime” lenders whose rates and terms are higher and often brokerage and lender fees apply. These lenders also offer opportunities designed to assist those having difficulties with their credit and find themselves stuck. “Subprime” lenders are often used in short term until one can qualify for prime lenders.

There are circumstances where private lenders are also utilized. A good mortgage specialist will be able to assess the situation and tell you when this is necessary. Of course, you will be notified well in advance anytime a fee will be charged by the broker or the lender.

Here’s what makes up your credit score and what impact they have on the bottom line. Payment History (how well you paid), Credit Debts (how many debts you have and how much they are utilized), Age of accounts (how long you’ve had these debts, the longer the better), Type of credit (they all impact differently, Credit Enquires, (are you a shopper spending lots of money, or in trouble?).

To find out how long negative comments stay on your credit bureau, check out this page on the Financial Consumer Agency of Canada’s website.

The biggest threats to your credit score are payments later than 30 days, maxed out credit cards, collections, proposals and bankruptcies.

The moral of the story, actions speak louder than words, don’t let your financial mistakes or slip ups define you. Keep a close eye on debts, ensure payments up to date, don’t overextend yourself and if you are having issues, talk with an advisor before it gets out of hand. There are many ways to prevent a credit rating breakdown, AC Lending is just the place to start.

Original Post:
Found here by:
ANNE MARTIN
Dominion Lending Centres – Accredited Mortgage Professional
Anne is part of Neighbourhood Dominion Lending Centres based in Barrie, ON.